Cognizant Continues Growth; Vonage Gets No Respect Despite Good Numbers


Teaneck, N.J.-based Cognizant registered another good quarter when it reported earnings last week. Third quarter revenue was up 7.8 percent sequentially and 31.6 percent year-over-year; guidance for full year 2011 revenue growth increased to at least 33 percent. Quarterly revenue rose to $1.601 billion, up 31.6 percent from the year-ago quarter. And the company continued to hire. Net headcount addition for the quarter exceeded 12,000, including approximately 4,000 employees from its CoreLogic India acquisition. Cognizant said Q4 revenue is anticipated at nearly $1.66 billion.

During the earnings call, the company reflected on the overall health of the IT industry. According to Gordon Coburn, CFO and COO, the overall IT budget for companies nationwide is flat. They continue to shift applications management work to the global delivery model, though, because “they have to get more done within those budgets,” Coburn said in a transcript released by Morningstar. This trend plays into Cognizant’s business model. “That frees up dollars, so they can continue to spend on development projects … one thing we’re constantly hearing is, unlike in the 2008 cycle, [clients] cannot slash and burn their discretionary development projects,” he said.

A recent India Realtime article posted on the Wall Street Journal website noted Cognizant’s consistent performance stems from its strategy of focusing on a few business segments. The company earns more than 78 percent of its revenue, or about $1.25 billion, from North America and “nearly 87 percent of its revenue from its unfailing breadwinners: financial services, healthcare, manufacturing and retail businesses.” While some have questioned this strategy, it seems to be working out very well for the firm.

Vonage, the Holmdel, N.J., Voice over Internet Protocol (VoIP) company that experienced recent troubles, posted some very good numbers this quarter, though the result wasn’t enough to keep analysts from speculating about customer churn. Net income excluding adjustments tripled from $8 million in the third quarter last year to $24 million, for the company’s 10th consecutive quarter of positive net income excluding adjustments.

After the earnings release, Vonage shares were down, however. Analysts on the website 24/7 Wall Street said the company’s real trouble is its difficulty growing. The firm ended with 2,388,721 net subscriber lines, down from 2,397,660 at June 30, 2011, and also down from 2,399,035 as of September 30, 2010.

During the call, Vonage outlined a way to grow through mobile products, saying “mobile is a clear priority.” Consumers globally are “shifting their communications to mobile devices, and we are meeting their needs” through recently launched iPhone apps known as Extensions and Time to Call.

CEO Mark Lefar stated the “two new mobile products we launched during the quarter are striking a chord with consumers seeking easy-to-use, low-cost mobile solutions for their international communication needs. Approximately 400,000 customers have either registered their mobile phone as an extension to their Vonage World plan or downloaded our Time to Call app since we launched these products just three months ago,” he said in a transcript of the company’s conference call supplied by SeekingAlpha.com.

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